‘Investment impact not for the long term’

Shares trading on Monday reflected some investor concern over the resignation of Vice President Leni Robredo as a Cabinet member, with analysts saying such political dissent at the top, though not unexpected, hurts an already fragile market.

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Beyond the immediate impact, however, the analysts do not see Robredo’s move and further political differences in government having a significant effect on investment, unless they get reflected on economic policies.

On Sunday, Robredo announced she was leaving her post as the head of the Housing and Urban Development Coordinating Council (HUDCC), claiming she was barred from attending Cabinet meetings starting Monday and that this was an indication of a Palace plot to unseat her.

Robredo pointed out that from the beginning of the new administration, she and President Rodrigo Duterte knew they had major differences.

Trading on the Philippine Stock Exchange on Monday showed the benchmark PSE index losing 1.60 percent or 110.33 points to close at 6,776.41

Although dragged by the regional decline on jitters over the Italian referendum on Sunday ahead of the US Federal Reserve policy meeting next week, the market also indicated concern over Robredo’s resignation from the Cabinet, which stock analyst Ralph Bodollo said signals further political risk that investors would certainly like to avoid.

‘Dangerous’

Justino Calaycay Jr., marketing and research head of A&A Securities, said a Cabinet member quitting her post over political differences with the President lends further uncertainty to an already shaky confidence in the investment outlook for the Philippines.

“It shows the imbalance of views in the Cabinet as it takes no opposition to the President’s views. This is ‘dangerous’ in the sense that an alternate view lends a wider perspective to policy formulation,” he pointed out.

Calaycay, nevertheless, noted that Robredo’s reason that there are irreconcilable differences between her and the President is too thin and invites curiosity as to what specific policy they disagreed on.

“Legally and technically, a Cabinet member serves at the pleasure of the President. If the President loses his trust on that person, he is empowered to show the person the door. So VP Leni’s removal as a member of the Cabinet is not an issue in this context. The President was well within his powers to do so,” he explained.

But absent any legal expertise on the matter, Calaycay said he believes that as an elected vice president, Robredo must not be prevented from attending such meetings, given that her function demands her to keep abreast of all developments in matters of governance.

“A VP should be able to seamlessly take over the functions of the presidency should that become necessary,” he concluded.

Political throwback

Glancing back at the May elections, Rajiv Biswas, Asia Pacific chief economist for IHS Markit, said the decision by President Duterte to bar Robredo from Cabinet meetings reflects a rewind, back to his views at the time he won the presidential race, when he indicated that he would not include Robredo in his Cabinet.

“His concern at that time was that as Robredo had narrowly beaten Duterte’s political ally Ferdinand ‘Bongbong’ Marcos Jr. for the VP post, such a cabinet appointment for Robredo could have hurt Duterte’s relations with Marcos,” he said.

Biswas pointed out that with relations difficult between Duterte and Robredo due to their differences on key political issues, such as Duterte’s approach to law and order, the president-elect has reverted to his original position by “ousting” Robredo from his Cabinet.

“The Supreme Court is currently considering an appeal by Marcos to have electoral recounts in a number of states and if he wins the appeal, it is possible that Marcos could eventually take the VP spot, increasing internal political tensions between Robredo’s Liberal Party and Duterte’s administration,” he said.

The IHS economist stressed that having Robredo in the vice presidential role had provided a voice of moderation within the Duterte administration.

Going forward, he said that if Robredo eventually loses the vice presidential post to Marcos due to an electoral recount, this could create concerns in some segments of the Philippine electorate about the return of the Marcos family to key roles in the Philippines government.

While domestic investment is still expected to remain strong due to positive sentiment among Philippine corporations about the business outlook, Biswas warned that there may be greater skepticism by foreign multinational corporations (MNCs) about the political outlook.

“MNCs have already been very cautious about foreign direct investment into the Philippines for a variety of reasons, including the difficult investment climate, with the Philippines ranked 99 out of the 190 countries in the World Bank’s 2017 Ease of Doing Business rankings,” he said.

Not for long

For Philippine Exporters Confederation Inc. (PHILEXPORT) President Sergio Ortiz-Luis Jr., Robredo’s resignation as Housing czar will not leave any remarkable impact on investments.

“She would leave the Cabinet, anyway, because she and the President have different opinions and pronouncements,” he said.

“The kind of news that will have an effect on the economy moving forward is President Duterte talking about economic policies, [though]this position is not really something that will affect our people,” Ortiz-Luis said.
Ortiz-Luis said the position of HUDCC head has no bearing on the economy, and with the business community.

“It is fairly expected, anyway, and people are still wondering why she’s still there. Neither the stock market nor investor confidence will be affected. This is not something people are tying up with the economy,” he reiterated.
Dismissing worries about investments, he said investment numbers for the Philippines are increasing, especially those that come from China.

“Our ace is the Chinese investments. Almost every week, there are investments coming in, and that is something that will drive the economy. Despite what people say, obviously FDIs [foreign direct investments]are going up so it’s a good thing,” he said.

The latest data showed that the net FDI surged 32 percent to $711 million in August from $539 million year-on-year, on the back of robust investments in debt instruments or inter-company borrowings that more than compensated for the decline in net equity capital investments.